Foreign investor appetite for Malaysian bonds to remain subdued in March as expectation of ‘hawkish Fed’ grow amid oil price spikes

Published on 19 Mar 2026.

Share Tweet Email

Foreign holdings of Malaysian bonds declined by RM2.5 bil in February, reversing January’s RM952 mil inflow and marking the first monthly net outflow in four months. The pullback was largely driven by foreign investors paring their exposure to corporate bonds (outflow of RM1.7 bil), alongside a return to net selling of Malaysian Government Securities (MGS) and Government Investment Issues (GII), which recorded a combined outflow of RM833.9 mil (January: RM2.1 bil inflow).

The foreign fund outflow reflected a sharp rise in global risk aversion amid heightened uncertainty over US tariff policies and a selloff in US equity markets. Investor sentiment was weighed down by concerns over the technology sector’s enormous spending toward artificial intelligence (AI) and the uncertainty about the eventual return on these investments. At the same time, fears grew over the potential impact of AI-related displacement risks to traditional business models which also triggered more selloff.

The flight to safety trend triggered a rally in US Treasury (UST) securities in February, with the 10-year UST yield falling 29 bps m-o-m. Increased demand for safe-haven assets also led to a flattening UST yield curve, as the 10-year–1-year UST yield spread narrowed to around 49 bps as at end-February from 78 bps as at end-January.

Looking ahead, investors are likely to maintain a cautious stance in March amid escalating geopolitical risks following the outbreak of the US-Israel war with Iran. The conflict, which began on the final day of February before spreading across the Middle East in March, has prompted markets to price in a geopolitical risk premium. Consequently, the 1-year and 10-year UST yields jumped to 3.68% and 4.26%, respectively, as at 18 March (end-February: 3.48% and 3.97%). This repricing reflects investor concerns that higher global energy prices could trigger an inflationary spike and derail the ongoing US Federal Reserve (Fed) rate-cut cycle.

The Fed delivered a “hawkish hold” at its March 2026 Federal Open Market Committee (FOMC) meeting, keeping the policy rate unchanged at 3.50%-3.75%, in line with market expectation. The Fed’s dot plot for March still suggest that it is expected to cut rates once this year, but the overall balance of projections have moved towards fewer reductions, with more FOMC members projecting one rate cut from two cuts the preceding quarter. Market expectations of rate cuts have also moderated sharply, with the implied probability rate cuts in 2026 falling to around 41% as at 19 March from about 70% on 17 March, according to CME FedWatch data. The increasingly hawkish US interest rate outlook, which could widen the UST-MGS yield differential unfavourably for Malaysia, is likely to remain a near-term headwind for ringgit-denominated assets.

 

Analytical contact Woon Khai Jhek, CFA  (603) 2708 8286 khaijhek@ram.com.my		Media contact Sakinah Arifin (603) 2708 8212 sakinah@ram.com.my
Nur Rasyidah Abd Karim (603) 2708 8208 rasyidah@ram.com.my

 

About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Credit Rating Agencies. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 

Disclaimer

ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information or statement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2026 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.